CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Management's intentional structuring of a lease transaction as an off-balance-sheet item (operating lease) illustrates how GAAP requirements may result in the quality of financial reporting being distorted. True or False?
Correct Answer: True

Managers with a good understanding of GAAP and its applications can sometimes structure transactions in a way that presents information in the most favorable light for their company or their own self-interest (incentive compensation, etc.) Analysts will often restate these numbers to better reflect the economic substance of the event.

User Contributed Comments 4

User Comment
kalps FALSE, as GAAP requires disclosure of commitments under CL for the future five years
db28luke GAAP does require disclosure, but it is usually buried near the end of the footnotes. Most people don't get that far.
poomie83 Umm the question is refering to op lease - therefore true
ascruggs92 kapls: CL's are not off balance sheet
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